Abstract

We investigate whether public opinion influences the level and structure of executive compensation. During 1992-2008 the negativity of press coverage of CEO pay varied significantly, with stock options being the most criticized pay component. We find that after more negative press coverage of CEO pay firms reduce option grants and increase less contentious types of pay such as salary, while overall compensation does not change. The reduction in option pay after increased press negativity is more pronounced when firms, CEOs and boards have stronger reputation concerns. Our within-firm, within-year identification shows the results cannot be explained by annual changes in accounting rules regarding executive compensation, stock market conditions, or pay mean-reversion.

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Ashley Brown at University of North Carolina (UNC) at Chapel Hill - Frank Hawkins Kenan Institute of Private Enterprise, Gregory W. Brown at University of North Carolina (UNC) at Chapel Hill - Finance Area

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